CUPERTINO, CA - SEPTEMBER 09: Attendees look at a display of the new Apple Watch during an Apple special event at the Flint Center for the Performing Arts on September 9, 2014 in Cupertino, California. Apple unveiled the Apple Watch wearable tech and two new iPhones, the iPhone 6 and iPhone 6 Plus. (Photo by Justin Sullivan/Getty Images)

Steve Jobs loved glass. For the first iPhone, he personally persuaded the head of Corning to make millions of tough “gorilla glass” screens at very short notice, even though it had not made gorilla glass in years.

Apple’s focus on screens has endured – but the success of its screen makers has not. The latest version of the iPhone was expected to use sapphire (rather than glass) screens. But GT Advanced Technologies, which partnered with Apple last year to build the biggest sapphire factory in the world, has filed for bankruptcy. Once a $3bn market capitalisation company, it is now worth under $200m.

The story of GTAT illustrates why Apple’s margins are so fat and those of its suppliers are so thin. Before Apple, GTAT struggled as a designer of photovoltaic equipment looking for a new lease of life. It had never manufactured sapphire before, but it had a small business designing sapphire furnaces and it needed to diversify. So a deal with Apple to make sapphire must have looked too good to pass up: Apple would even provide a $580m prepayment (basically a loan) to fund the factory’s start-up costs.

The prepayment was attached to capacity targets – and could even be clawed back under certain circumstances. Apple did not guarantee a purchase volume but it did wrangle an exclusivity commitment from GTAT, which stopped selling furnaces to its regular customers to focus on the factory.

For GTAT, Apple’s lifeline turned out to be nothing of the sort. The iPhones did not use sapphire screens after all; the Watch does, but in smaller quantities. Revenues in the first half of 2014 fell by a third, while operating losses widened to $140m. GTAT’s sales of sapphire fell behind schedule through the summer, says UBS. And the last tranche of Apple’s prepayment never came through.

Lex Apple

Neither company will say what happened – perhaps a manufacturing snag was to blame. Then GTAT filed for bankruptcy. Sapphire may be the second-hardest mineral on the planet, but life as an Apple supplier can break just about anybody.

Tweet the Lex team at @FTLex

Get alerts on GT Advanced Technologies Inc when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article